When examining Birmingham City Council’s contract with Capita in the form of Service Birmingham, there are three key figures we need to remember: £342,000, £58,000 and £34,000.
The first figure of £342,000 is the net spend per day by Birmingham City Council on invoices from Service Birmingham. Yes, £342,000 a day. The second figure of £58,000 is the operating profit that Service Birmingham stacks up every day. And £34,000 is the shareholder dividend paid out per day to Capita Business Services Limited (and little it seems to the other supposed shareholder group, the citizens of Birmingham).
Indeed, what was most striking about deputy leader Ian Ward’s ‘Council continues to challenge Service Birmingham’ piece recently in the Birmingham Post was that at no point did Coun Ward challenge the £58,000-a-day operating profits figure. He can’t of course, as it’s a fact.
Rather, Coun Ward’s piece raises more questions than it actually answers. Here are four key sets of questions for starters for Coun Ward. I’ll be asking more in forthcoming blogs at Birminghampost.net.
Will the Service Birmingham Contract now be published so the citizens of Birmingham can see exactly what their net £342,000 per day is being spent on?
Coun Ward keeps asserting that critics are not in possession of the facts and so are not in a position really to comment. Well, all we have to go on (and all I have commented upon) is what little gets into the public domain due to a cosy conspiracy of commercial and political secrecy. But those facts which are in the public domain at least raise the question as to whether things are working here in the public interest.
Significantly, Barnet Council has placed its big outsourcing contracts with Capita in the public domain. Capita has waived its rights under those contracts to commercial confidentiality, and waived its rights to redact all but the most personal of details.
If it’s good enough for Barnet, Coun Ward and Capita, why not Birmingham? I challenge Coun Ward to put the contract on the web so we can properly start to understand it in the depth that Coun Ward asks for. Until then, Coun Ward can’t criticise us for not being in possession of the facts.
Last week, Adrian Goldberg did a brilliant job on his BBC Radio WM show in pinning down Birmingham City Council’s outgoing chief executive Stephen Hughes on Capita. Hughes agreed in principle with the idea of ‘doing a Barnet’ and putting the Capita contract on the web. That’s a big breakthrough and needs to be followed up by the council ASAP.
Can the Service Birmingham Contract be cancelled early? Does it require cause (or fault) to do so? Or may it by terminated by either party at will? Upon what notice period and with what exit fees?
Most commercial contracts provide mechanisms for early termination and its consequences and I am pretty confident that this one will. Can the council cancel on, say, six, two or even one month’s notice?
And as this is a commercial contract, a cancellation can bring benefits for the council in-year. There’s no need to wait until the next municipal year to dump unviable commercial contracts, Councillor Ward. Cancel a contract in October and you’ve saved half a year’s municipal spending – in year.
We are told that a review took place last year and another one is taking place this year. Yet the contract remains in place. There seems undue languor and relaxation in dealing with this. This is in stark contrast with the tremendous urgency in seeking to deal with other areas of the council’s spending. The elephant in the room has been pretty much left to sit there, counting its dividends.
And every day that goes by costs – £342,000 a day, in fact, on this contract. It ought to have been the first item of business in stripping spending out of Birmingham City Council in response to austerity cuts and rising costs.
As a Birmingham citizen I do not have access to the Capita contract so can only guess what the exit fees might be. But with a core ICT contract of say £60 million, as a very rough rule of thumb one might estimate that exit fees could be between a third and a half of this figure, hence my back-of-the-envelope estimates of £20 million to £30 million.
Am I right? Unless the citizens of Birmingham know how much it will cost to get out of this contract how can they determine whether the outcome of a review in relation to the Service Birmingham contract is robust? Are we simply to take it on trust? That’s simply not good enough.
Has there been detailed and proper succession planning in order to strengthen negotiation or to allow for the practical possibility of cancellation and handover to others?
It’s an odd negotiating position on behalf of the citizens of Birmingham to lead the other side of the contract to believe that it would be far too difficult to cancel the contract. To say cancelling a contract is “not easy” is rather a ‘given’, Cllr Ward, and at no stage as far as I am aware has anyone – me included – suggest that it was. Surely any skilled negotiator would have a number of fall-backs and have planned for a number of contract succession positions? Business professionals do it all the time.
To paraphrase Bevan, Coun Ward, are you going naked into the negotiating chamber? If you haven’t got a succession plan, get one right now. Under your own logic, Coun Ward, if there’s no Plan B here, we’re stuck with Plan A, regardless. Plan B should have been made ready months ago, probably last year.
How much is actually being spent on the Capita contract? Upon what?
I was careful in my last Birmingham Post piece to point out that the £120 million net spent last year (a sum confirmed by Stephen Hughes in April) was spent on ICT and other things such as business transformation, not just on ‘core ICT’. The actual invoices paid by BCC last year were £145 million.
Steven Hughes in April said Core ICT was just over £60 million of this. Coun Ward specifies figures of £20 million on the call centre and billing, and £13 million on schools. We can assume they were similar in 2012. So what were the remaining £50 million in invoices actually spent on?
If they were all ‘one-offs’, then for the last five years there must have been at least £50 million in ‘one-offs’ each year, and counting. If you keep repeating ‘one-offs’ annually, they cease to be ‘one-offs’, by definition. They are hardwired into the contract.
Were the obviously large amounts spent on the new Library of Birmingham extra to the reported £189 million spent, or part of that? Did the library have no choice but to use Service Birmingham?
Answers on these questions would be very welcome. There is urgency in dealing with this, and I sense little urgency. Cllr Ward said that he set about this as soon as he came into office. And the contract remains pretty much intact 18 months later.
And that’s £31 million in profits and £18 million in dividends to Capita in the meantime. Or £58,000 in operating profits a day and £34,000 a day in dividends for Capita.
* Professor David Bailey works at the Aston Business School. Read his business blog at Birminghampost.co.uk